Notes From Underground

The FED released the minutes of the last FOMC meeting and there was very little that hadn’t already been revealed and digested by the market. In tonight’s reading, some in the media are trying to raise an issue that there is a rift between voting members. Readers of the NOTES will know the answer: There is no rift. Yes, between meetings there is a plethora of dissenting speeches but as the FOMC MINUTES are clear to record, the vote to stay the present course was unanimous. The thing that seems the most transitory to the FED is the lack of dissension when gathered at the same table. To paraphrase PUDD’NHEAD WILSON, WHEN ALL THE EGGHEADS ARE IN ONE ROOM, WATCH THE ROOM CLOSELY.

Last night the Chinese central bank raised the overnight interest rate and again the market disregarded it. The Chinese rates are low by any measure of the TAYLOR RULE and as some market analysts get overly excited by the rate and reserve requirement increases, recent attempts to tighten credit have had very little impact on GLOBAL COMMODITY PRICES. Copper was under some pressure but the metal with a PhD in economics is a perverted asset because Chinese are using copper warehouse receipts as collateral for loans, so it is hard to determine the real demand for everyday use.

There seems to be a great many games being played in copper but with the rebuilding that is to take place in New Zealand and Japan it may be a difficult times for the shorts in that market. The bigger part of the Chinese rate story is that GOLD and SILVER staged impressive rallies on a day that should have seen the precious metals sell off if the Chinese rate increase was deemed to be of consequence for a slowing of the Chinese economy and a lessening of global demand.

There is something bigger going on and as I opined in Sunday night’s BLOG, the market is increasingly questioning the FED’s CREDIBILITY. No, I can’t mathematically model it but market reactions are signaling that there is some type of growing fear. Yes, I know that the U.S. TREASURY MARKET is not selling off so as to add further support to the view, but the FED has perverted that market and provided a BID to the prices of DEBT. As markets will always do, they go to the weakest resistance points and that has been the DOLLAR and PRECIOUS METALS. The GOLD is calling Chairman Bernanke OUT. Will the FED heed the call or depend on its models to provide all the information it needs?

This week is Market Masters Week on CNBC, which includes a splendid interview with Michael Steinhardt today. It is filled with great wisdom, and we don’t mean to toot our own horn here, but he thinks the 2-YEAR TREASURY NOTE is also a sale, as does NOTES FROM UNDERGROUND. The GOLD will challenge Mr.Bernanke, the action post-CHINESE rate rise seems to have confirmed it.

Tags: 2-year Treasury Note, Bernanke, CNBC, commodity, Fed, FOMC minutes, Gold, Michael Steinhardt, PBOC, silver, Taylor rule, U.S. Treasury Market

This entry was posted on April 5, 2011 at 8:39 pm and is filed under China, Commodities, Debt Market, Federal Reserve, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.